MANU/RPRL/0123/2016

Ministry : Reserve Bank of India

Department/Board : RBI

Press Release No. : 2015-2016/2527

Date : 28.04.2016

Minutes of the March 30, 2016 Meeting of the Technical Advisory Committee on Monetary Policy

The fortieth meeting of the Technical Advisory Committee (TAC) on monetary policy was held on March 30, 2016 in the run up to the First Bi-monthly Monetary Policy Review of 2016-17 on April 5, 2016. The main points discussed at the meeting are set out below.

Members noted that global risks were worrying as global growth is slowing. US growth is likely to be around 2 per cent in 2016 and recovery in European Union and Japan will be muted. China's real growth is below 7 per cent and is likely to fall below 5 per cent in about 3 years, although there was a view that China's technocrats would ensure that the targeted growth of 6.5 per cent is achieved. Overall, the IMF's global growth projections appear optimistic and the global economy is likely to face a rough period next year. Negative effects of the Chinese growth slow down are already impacting the global economy, and much vaunted market reforms are likely to remain on paper for political economy reasons. Global financial markets have calmed after a turbulent beginning of the year. In the US, stock markets recovered from recent volatility following the scare of a US recession and deflation, and core inflation has risen to 2.3 per cent, the highest since 2008. After the initial hiccup surrounding the Fed lift off, the Fed has signalled a slower pace of normalisation. Oil prices are expected to stay soft, notwithstanding the recent firming up.

On domestic growth, Members were of the view that notwithstanding deceleration of activity in the recent period, GDP growth is still strong. However, industrial growth is low largely due to manufacturing which, in turn, is driven by weakness in the capital goods sector. Two sectors - agriculture/rural and listed corporate - have seen noticeably slower growth - the former due to the rare occurrence of two consecutive droughts and the latter driven by global deflationary impulses and a sharp decline in nominal GDP growth over the last 5 years. Divergence between the value added indicator (GVA) and the volume indicator (IIP) suggests that falling commodity prices has not led to a decline in profits. This will lead to higher corporate savings which, in turn, will lead to improvement in the current account, especially in an environment of weak investment. Consumption, though somewhat tepid is contributing to demand; the decline in inflation and commodity prices is also helping urban consumption offset sluggishness in rural consumption. There are risks, however, to the revival of growth. First, data from the corporate sector are indicating a worsening, with debt concentrated among large corporates (especially in steel and power sectors). Second, stressed corporate balance sheets are pushing capex down, suggesting that private investment is likely to be flat in the short term. Third, ev........